Most bubbles start based on some fundamental value rationale. For real estate, the ebb and flow of supply and demand are what sparks the initial price increase.

Most bubbles start based on some fundamental value rationale. For real estate, the ebb and flow of supply and demand are what sparks the initial price increase. A bubble occurs when speculators pile into that investment vehicle and drive up demand even further. This becomes a reinforcing phenomenon until the number of new speculators dries up and it suddenly whipsaws the other way. Nothing is immune from a bubble, but housing is particularly prone to it based on the lag between demand and available supply. It also means the hangover is often decades long while it clears the backlog. Yes, people need houses. But people don't need 4 or 5 houses as speculative investment vehicles that "pay for themselves" by renting out while they hold it for a couple years before flipping. That's the demand that crashes hard when markets turn.